Fed: Fed’s Jerome Powell is moving closer to a dial-back in stimulus

Federal Reserve Chair Jerome Powell faces a communication challenge in the coming week as he leans toward paring back stimulus while trying to avert speculation that such a shift presages future interest-rate increases.

Fed officials are expected to signal a start to scaling down monthly bond purchases in their policy statement at 2 p.m. Washington time on Wednesday, the most significant among at least 15 global central bank decisions due. Economists surveyed by Bloomberg see that hint being followed by a formal announcement in November.

Powell will try to convince Americans that such a stance doesn’t start the clock on raising rates, while explaining fresh Fed forecasts where some of his colleagues predict liftoff in 2022. He’ll also face questions from reporters about recent embarrassing 2020 stock-trading revelations involving two regional Fed presidents.

That tough to-do list for Powell will be made even harder by awareness that President Joe Biden is weighing whether to reappoint the Fed chair for another four years. A decision is expected this fall, and while Bloomberg News has reported that White House advisers are considering recommending to keep Powell at the helm, the deal hasn’t been stitched up.

The Fed’s decision showcases the quandary for global central banks of determining whether economic growth is strong enough to dial back pandemic-era support, and if inflation pressures are strong enough to even require tightening.

That’s what officials in Brazil on Wednesday and Norway on Thursday are seen likely to do, with interest-rate increases foreseen for both countries. By contrast, central banks in Japan, Switzerland and the U.K. are among those that may keep policy stances largely unchanged.

What Bloomberg Economics Says:

“The September statement likely will be the first time since the pandemic began that the FOMC includes language about plans to reduce asset purchases this year,” say Anna Wong, Andrew Husby and Eliza Winger.

Elsewhere, the OECD in Paris will release updated global economic forecasts on Tuesday.

Elections in the coming week will determine the leadership and economic direction of two Group of Seven countries. Canada goes first, on Monday, with Prime Minister Justin Trudeau seen holding a slight edge over his Conservative challenger. Germany’s national vote takes place Sept. 26, ending 16 years with Angela Merkel at the helm.

Asia

The Bank of Japan is expected to reveal more details of its green lending program when it meets during a shortened holiday week. The central bank is widely expected to leave its main policy settings unchanged. Rivals vying to become Japan’s next prime minister will continue to offer details of their policy plans ahead of a ruling party election on Sept. 29.

In Australia, a speech by Reserve Bank of Australia Assistant Governor Michele Bullock will shed more light on any concerns over the financial system under the pandemic. Minutes of the bank’s most recent meeting may offer more details of the debate over tapering plans in light of extended lockdowns.

Early export figures from South Korea will give the latest reading of global trade’s pulse. Japan’s inflation data out Friday could turn positive for the first time since March 2020. Pakistan, Indonesia, the Philippines and Taiwan all have interest rate decisions.

China will be on holiday for the mid-autumn festival early in the week, with spending patterns to be scrutinized for a health check on the consumer after disappointing August retail sales. China will set its loan prime rate on Wednesday, with economists expecting no change.

Europe, Middle East, Africa

Norway takes center stage amid several monetary decisions from around the region this week, with the Norges Bank widely expected to become the first of the Group of 10 jurisdictions with the world’s most heavily traded currencies to raise interest rates since the onset of the pandemic.

Faced with softening growth and spiking inflation, Bank of England officials will probably keep their stance unchanged on Thursday in a decision that features the novelty of two new Monetary Policy Committee members. Michael Saunders is likely to have repeated his vote to cut back on bond buying.

As with the Fed, Sweden’s Riksbank may signal plans to pare back crisis stimulus, while Hungary’s central bank will reveal if policy makers want to slow one of the European Union’s most aggressive monetary-tightening cycles.

The Swiss National Bank is likely to keep the world’s lowest rate, currently at -0.75 per cent, unchanged as it continues rhetoric bemoaning the strength of the franc. Monetary officials in Turkey are also likely to opt for an unchanged stance, holding their one-week repo rate at 19 per cent.

In South Africa, data on Wednesday is likely to show inflation accelerated to 4.8 per cent in August, while remaining within the central bank’s 3 per cent to 6 per cent target range.

That will allow Monetary Policy Committee members who meet the following day to leave the benchmark rate at a record low, supporting an economy seen contracting in the third quarter after deadly riots and a cyber attack at state-owned ports and rail operator hit output.

Latin America

Argentina on Tuesday posts second-quarter output, the last of the region’s big six economies to do so. A resurgence of the pandemic undercut activity in April and May, pointing to a negative quarterly reading.

Four straight interest rate increases — including a full-point hike on Aug. 4 — totaling 325 basis points has brought Brazil’s central bank no closer to catching inflation than when the tightening cycle began in March.

After central bank chief Roberto Campos Neto appeared to throw cold water on speculation for more aggressive tightening, expectations are leaning toward a second straight 100-bps hike on Wednesday, which would put the key rate at 6.25 per cent.

On Thursday, Mexico posts its final inflation reading before Banxico’s Sept. 30 meeting. Price caps on liquefied petroleum gas have pushed consumer prices lower, though the headline figure remains well over target.

Also Thursday, Argentina’s second-quarter unemployment report should show a sixth-straight double-digit reading. On Friday, Mexico reports July retail sales data that may show that growth slowed heading into the second half.

Closing out the week, look for the mid-September reading of Brazil’s benchmark inflation index to rise marginally to just under 10 per cent, more than 600bps over target.